SAUDI ARABIA Trends and Developments Contributed by: Christiana O’Connell-Schizas, Baker McKenzie
Human-power companies Local human-power companies can provide work - force solutions to other locally incorporated entities. They cannot provide workforce solutions to offshore entities, as that would raise a number of issues and risks. The offshore entity may be deemed to: • be doing business in Saudi Arabia in violation of the Foreign Investment Law, which would require it to establish a local entity; • have a permanent establishment, exposing it to Saudi tax; and • be in violation of the Anti-Concealment Law (by virtue of using a local entity as a “front”), which carries criminal penalties. While many companies present themselves as being human-power/recruitment companies, there are only a limited number who are properly licensed as such – ie, their object is recruitment, and they are a wholly Saudi-owned joint-stock company, properly capital - ised and licensed as a recruitment company by the MHRSD. Personnel The human-power company’s “lent” personnel would be treated as the receiving entity’s personnel for all intents and purposes, would act under its direction and control, and would count in the entity’s Saudisa - tion ratio (therefore, the receiving entity would need to be in at least the Medium Green category or higher for Saudisation purposes to receive any “lent” foreign nationals). The talent that is readily available from human-power companies can often be limited. Service providers Locally incorporated entities can provide services such as technology support to individuals and other entities in Saudi Arabia, as long as these services are within the provider’s licensed objects. In Saudi Arabia, entities under formation must choose their objects from a long list of activities in the National Classifi - cation for Economic Activities, which is derived from the International Standard Industrial Classification of All Economic Activities, fourth version (ISIC4) issued by the United Nations Economic and Social Council. An entity can update its objects post-incorporation (unless it is a technical scientific office or regional
Human-Power and Service Providers in Saudi Arabia Background The Saudi Labour Law requires that employees work for and be paid by their employer – and, in the case of foreign nationals, be sponsored by their employer (for work/residency permit purposes). Saudi nationals can have more than one employer or act as independ - ent (self-employed) consultants. This is in contrast with foreign nationals, who cannot work for a third party or for themselves; they may only work for their employer/sponsor, who must be one and the same entity licensed to do business in Saudi Arabia. As such, there are only two ways a party may benefit from “additional personnel” (so to speak) in Saudi Arabia – and that is through a “manpower company” (“human-power company”, for the sake of equality) or a service provider, as shall be discussed. A foreign national employee’s residence permit ( iqama ) shows the employee’s name and nationality, the entity they work for and are sponsored by, and their job posi - tion. If there is a labour office inspection at an entity’s premises, an employee may be required to present a valid iqama that shows the entity whose premises or work site they are working on is their sponsor. If there is no valid reason for any inconsistency between the entity, whose premises a foreign national is working on, and their sponsor (ie, their employer is a licensed human-power company or their employer is performing services on the receiving entity’s premises – in both cases, with an Ajeer certificate), the foreign national could be arrested and held until deported, and the lending and receiving entities could, for a first- time offence, be fined up to about SAR25,000 (per foreign national employee) and banned from recruit - ing foreign nationals for one year – and the responsi - ble manager could be deported if they are a foreign national. These are the sanctions under the Ministry of Interior’s ambit for violating the Residency Law. Fines are fairly common in the market; the latter two sanc - tions are seldom – if ever – imposed in practice. The lending and receiving entities could also be fined up to SAR10,000 (per foreign national employee) by the Ministry of Human Resources and Social Develop - ment (MHRSD) for violating the Labour Law.
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